Ny B48 Materials From Gao Review- Book 3 Fdr- Q 6 Tab- 2-24-02 Gao Interview- Sec Chairman Pitt 931

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Record of Interview With SEC Chairman Pitt Reviewed by: Type reviewer name here Review Date: Type review date here

Record of Interview Purpose

To discuss his role as the Chairman of the Securities and Exchange Commission (SEC) in restoring the markets following the September 11, 2001 terrorist attacks.

Contact Method

Meeting

Contact Place

SEC Headquarters Washington, DC

Contact Date

April 24, 2002

Participants

SEC Harvey Pitt, Chairman GAO/FMCI Thomas McCool, Managing Director Davi D'Agostino, Director Cody Goebel, Asst. Director Jean-Paul Reveyoso, Sr. Evaluator

Comments/Remarks

Synopsis of Chairman's Involvement Immediatelv Following the Terrorist Attacks Chairman Pitt began by explaining that information is critical at the beginning of any crisis particularly in a tragedy such as the atacks on the World Trade Center, in which emotions and axiety are high and accurrate information is scarce.

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Following the attacks the Chairman spoke with the heads of the New \k Exchang markets should open. It was apparent that a terrorist attack was underway after the second plane crash and that the markets would not r. opening. Chairman Pitt then contacted the Presidents Working Group (PWG) to discuss what approach the financial markets should take in general. The Chairman and members of the PWG immediately realized that the issues were not merely financial but also political and defense related. He said the PWG is a very useful mechanism to convene the critical players in the market to discuss the relevant issues in a holistic manner. He said that although there were no problems reaching representatives of brokerdealers, the exchanges, mutual funds and other major order flow providers, he said that important members of Congress and the relevant committee chairman were not easily reached or in the loop of communications. In the future he would like to reach out to the hill to establish mechanisms so that the key oversight committees will be included in the communication loops, particularly in the event of catastrophic emergencies. Chairman Pitt said that SEC fully supported the decision to keep the markets closed until operations were adequately restored, which was important for maintaining a consistent front to the pubic. He said that at the time he was making these decisions the commission only had three members including him and the relationship between him and the members were not especially collegia!. The Chairman said a mechanism needs to be developed that would vest power in the Chairman in the eve. of an emergency so that he has sufficient decision making authority. Having said that, Chairman does not want his office to be a "imperial chairmanship: but, just wants to ensure that he has adequate decision making authority in the event of a catastrophic event. Chairman Pitt said that prior to opening the markets he tried to assess all the problems that needed to be addressed before the markets could open and whether or not investors would be harmed. He said that under no circumstances should the markets have opened if they would end up malfunctioning or shutting down during the course of a trading day. Such a shutdown would have detrimentally affected investor confidence and could have had lasting negative consequences. Chairman Pitt also said that he did not want to send in 10,000 - 15,000 workers into the ground zero while the recovery efforts were at there peak, particularly at a time when live bodies where still being uncovered from ground zero. Chairman Pitt also said that he had a unique perspective on the events at ground zero since SEC's New York office was in one of the buildings destroyed at ground zero (7 WTC). He said that he fully supported the use the deployment of counselors to deal with the emotional impact of the

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attacks and that such psychological support will be essential in the event of similar emergencies. Chairman Pitt said that he did not believe the markets could have opened by that Friday, September 14. He said that the geographic concentration of the U.S. financial markets in the ground zero was so high that the impact on the markets was devastating. He said he met with both Verizon and Con Ed (the power utility) to discuss the status of their respective restoration efforts and how ready market participants in the New York area were ready to restore market operations. In addition, the delaying the opening of the markets until Monday 9/17 allowed a weekend of testing. He noted that the damage to the Verizon central office at 140 West St. was catastrophic because that particular may have controlled as much as 80 percent of the calling capacity of the organizations located in that part of Manhattan. Chairman Pitt said that although he was an advocate of opening the markets as quickly as possible, he thought it was paramount that all investors have fair access and there was sufficient liquidity before proceeding with trading. He said these types of issues were discussed through the President's Working Group, the Federal Reserve, and Department of Treasury. He said they also discussed the potential for market panics and what should be done in response and the establishment of timelines for the restoration of key operations. He said that SEC tried to prepare by establishing hotlines and supplementing their websites to ensure that investors and financial firms would have adequate access to reliable information. Chairman Pitt said that he believed that one role of the regulators was to ensure that the markets operated smoothly and fairly. He said SEC relaxed certain regulatory requirements such as rules on repurchasing shares in order forestall market panics and to ensure that firms were not overly burdened during the critical period when the markets were first reopened. He said his goal was to ensure that the role of the government would not be dictatorial and would provide the necessary balance to ensure smooth market operations. Chairman Pitt said that SEC has had no interaction with the Office of Homeland Security to date. He then went on to discuss the need for adequate building security at government agencies and that he was not completely satisfied with the current level of SEC building although he realized that there were limitations to what measures could be implemented in a relatively public facility like SEC headquarters. He said the Federal Reserve has more authority to secure its facilities than SEC does and it would be helpful if he could take more steps to ensure that his staff our safe. Chairman Pitt said that the events of 9/11 have certainly raised industry awareness on the importance of disaster planning. However, he said that there is no "one-size-fits-air solution to disaster planning. He said that

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although larger firms like a Merrill Lynch have the resources, level of operations, and risk profile to justify substantial investments in disaster planning such an approach would not necessarily be prudent for a smaller, broker-dealer with relatively unsophisticated operations. He said that while generic rules may be helpful to industry, including requiring all firms to have disaster recovery plans; many of these types of these decisions are business decisions and should be driven by the nature of a firms' operations and not by regulatory mandates. Chairman Pitt said that he agrees that the New York Stock Exchange needs to develop a backup trading floor and should also explore developing the capability of trading stocks electronically. He said this is important because the daily trading at NYSE drives stock prices worldwide and its influence is disproportionate to the scope of its operations. However, he said that in some ways Nasdaq might be more vulnerable since they rely exclusively on telecommunications to conduct trades [note: Is this not also true for NYSE.] Finally, Chairman Pitt noted that the 1987 stock crash and to a lesser the Y2K efforts were templates for how the markets should respond to potential systemic crises. He said the regulators and other relevant government entities should avail themselves to be sensitized to crisis planning and the necessary steps that ensure adequate disaster recovery plans are in place throughout the industry.

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